3% Higher Residential Rates of SDLT

(SDLT Rates and Calculations)

Chapter Summary: This chapter discusses the factors that influence higher Stamp Duty Land Tax (SDLT) rates and defines the criteria for a ‘main residence’ which affects SDLT calculations.

Key Points

  • Higher SDLT rates apply based on the buyer’s type, the number of properties owned, property use, and property price.
  • Defining a main residence is crucial as it impacts SDLT rates, especially when the property is not the only one owned by the buyer.
  • Factors such as family life location, children’s schooling, voting registration, and more help determine the main residence.

Main Principles

  • SDLT rates are structured to manage housing availability and market accessibility, aiming to prevent housing shortages and speculative buying.
  • Understanding and proving a property as one’s main residence can significantly alter tax liabilities, emphasising the need for clear documentation and consistent use evidence. 

Factors Determining Higher Rates

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

  • Type of Buyer: Higher rates typically apply to purchases by individuals already owning a property and corporate entities, regardless of their existing property portfolio.
  • Number of Properties: The acquisition of additional residential properties triggers higher rates, aiming to manage the availability of homes for different market segments.
  • Property Use: The intended use of the property, whether as a primary residence, a second home, or a rental property, influences the SDLT rate applied.
  • Price Thresholds: Properties above certain price thresholds are subject to higher SDLT rates, reflecting the investment’s size and impact on the housing market.

Defining the “Main Residence”

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Determining a “main residence” for SDLT purposes involves assessing factors like family life, work location, and where you spend most of your time, which affects tax rates when buying or selling properties.

Defining a ‘main residence’ is particularly important for stamp duty purposes because it directly impacts the tax liabilities when buying or selling properties. 

Stamp duty rates can vary significantly based on whether a property is considered a replacement for your main residence or an additional property. For instance, purchasing a new main residence might qualify you for certain reliefs or lower rates, whereas buying an additional property could attract higher stamp duty charges. 

The law doesn’t provide a clear-cut definition of a “main” or “only” residence. This means we have to look at various factors to figure out which home counts as your main residence when you own more than one.

How to Determine Your Main Residence

If you live in just one home, that’s automatically your main or only residence. But if you have multiple homes, things get a bit more complicated. Here’s how to start sorting it out, based on guidelines from HMRC:

Key Factors to Consider

  • Family Life: If you’re married or in a civil partnership, where does your family spend most of its time?
  • Children’s Schooling: Where do your children go to school?
  • Voting Registration: Where are you registered to vote?
  • Work Location: Where’s your place of work?
  • Home Setup: How is each residence furnished?
  • Mail: Which address do you use for most of your correspondence?
  • Healthcare: Where are you registered with a doctor or dentist?
  • Car Registration and Insurance: At which address is your car registered and insured?
  • Council Tax: Which address is considered your main residence for council tax purposes?

Examples to Explain the Ideas

Imagine “Alex” owns two homes: one in London where he works during the week and another in the countryside where he spends weekends. To determine his main residence, Alex would need to look at the above factors. If his family lives in the countryside home, his children attend school there, and that’s where his car is registered, it’s likely that the countryside home would be considered his main residence.

Replacing Your Main Residence: Two-Part Test

When you sell one home and buy another, determining if you’re replacing your main residence involves a two-part test:

  1. The Sold Dwelling: Was the home you sold your main or only residence? This is determined by the facts, such as how you used the home.
  2. The Purchased Dwelling: Do you intend to make the new home your main residence? If you plan to move in immediately or after some renovations, it likely meets the criteria. However, if you bought it to rent it out, it wouldn’t qualify as your main residence.

Practical Scenario

Let’s say “Jasmine” buys a new house but plans to renovate it before moving in. Her intention to make it her main residence means it can be considered as such for tax purposes, even if she hasn’t moved in yet. However, if “Jasmine” intended to rent out the new house from the start, it wouldn’t count as her main residence.

In summary, determining your main residence involves looking at your life circumstances and intentions, especially when owning multiple properties. This understanding is crucial for property investors to navigate tax implications efficiently.

Scenarios Leading to Higher SDLT Rates

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Higher SDLT rates apply when purchasing residential properties through a limited company, when one partner in a couple already owns a property, or when buying a buy-to-let property before a main residence, with a possible refund if the previous main residence is sold within three years.

  1. Property Investor Purchasing Through a Limited Company

When a property investor decides to purchase a residential property through a limited company, the transaction automatically attracts higher SDLT rates. This is because the law considers companies, regardless of their size or the number of properties they own, to be subject to the additional 3% SDLT surcharge on top of the standard rates for residential properties.

Example: Imagine “Greenfield Properties Ltd,” a limited company, buys a residential apartment to add to its rental portfolio. This purchase will incur higher SDLT rates because it is being made by a corporate entity, which is always subject to the additional charge on residential properties.

  1. A Couple Buying a House When One Partner Already Owns Property

For couples purchasing a property together, if either partner already owns a property and they are not selling it, the new purchase will attract higher SDLT rates. This scenario is common when one partner moves into the other’s home and they decide to purchase a new property together while retaining the original home.

Example: Alex and Jordan decide to buy a house together. Alex already owns a flat, which he intends to keep and rent out. Since Alex is not selling his existing property, the purchase of the new house with Jordan will be subject to the higher rates of SDLT because it’s considered an additional property for Alex.

  1. Buying a Buy-to-Let Property First, Then Purchasing a First Home

If someone buys a property as an investment (buy-to-let) before purchasing their own residential home, the purchase of their residential home will be subject to higher SDLT rates. This is because the residential home is considered an additional property since they already own property at the time of purchase.

Example: Taylor buys a small apartment to rent out as her first property investment. A year later, she decides to buy a separate house to live in. Since she already owns the apartment, the purchase of the house will attract the higher SDLT rates, as it is considered an additional property.

Refund on Selling an Additional Property

It’s important to note that there’s a relief available for homeowners who find themselves in the situation of paying the higher SDLT rates on purchasing a new home when they already have another. If you sell your previous main residence within three years of completing the purchase of your new home, you can apply for a refund of the additional SDLT paid. This policy is designed to offer flexibility for those who might be unable to sell their previous home before or simultaneously with the purchase of a new one.

Refund Example: Sam buys a new home while still owning her previous one, thus paying the higher SDLT rates. If Sam manages to sell her previous main residence within three years of buying the new home, she can claim a refund for the additional stamp duty she had to pay.

Properties Held in Trusts

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Properties held in trusts affect SDLT rates depending on the beneficiary’s rights, with potential higher rates if the beneficiary is seen as the owner and already owns other properties.

Settlement Trusts

Imagine a trust called a “Settlement Trust” holds a property, and someone named “Jordan” has the right to live there for life or receive the income from the property. In this case, Jordan is considered the property owner for SDLT purposes. If Jordan already owns a home and the trust’s property counts as an additional property, Jordan could be subject to higher SDLT rates on future property purchases.

  • Example: Jordan lives in a house owned by a Settlement Trust and decides to buy a second property. Jordan would likely pay the higher SDLT rate on this purchase because the trust property is considered in their name.

Bare Trusts

In a “Bare Trust,” the property is held by a trustee but the beneficiary, such as “Alex,” has full entitlement to the property. For SDLT, Alex is seen as the owner. This means if Alex buys another house, it might be subject to higher SDLT rates because the property in the Bare Trust is counted as theirs.

  • Example: If Alex, who benefits from a Bare Trust, buys a holiday home, they might pay the higher SDLT rate because the Bare Trust property is seen as their first property.

Trusts Without Specific Beneficiary Rights

If a trust holds a property and the beneficiaries don’t have the right to occupy it or receive its income (and it’s not a Bare Trust), the trustees are considered the owners for SDLT purposes. This situation often applies to more complex trusts.

  • Example: A trust holds a rental property and distributes income among various family members. Here, the trustees would be responsible for any SDLT, not the beneficiaries.

Properties Held by Minors in Trusts

When a property is held in trust for a minor child, the child’s parents are considered the owners for SDLT purposes. This rule helps prevent tax avoidance through property gifts to children.

  • Example: “Mia” is 10 years old and a beneficiary of a trust holding a property. For SDLT purposes, her parents, “Liam” and “Noah,” are considered the owners of that property.

Properties Held by Partnerships

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When part of a partnership that holds property, individuals are typically considered owners for SDLT purposes, potentially facing higher rates on personal property purchases, unless the property is used for the partnership’s trade.

General Rules

When someone is part of a partnership that holds a property, they are typically treated as owning that property for SDLT purposes. This could affect SDLT rates if they buy another property.

  • Example: “Ella” is in a partnership that owns several properties. If Ella buys a personal property, she might pay higher SDLT rates because of the properties owned by the partnership.

Exceptions for Business Properties

If the partnership’s property is used for the business’s trade (not including property letting), an individual partner might not have to pay higher SDLT rates for their personal property purchases.

  • Example: The partnership owns a factory, and Ella buys a personal home. The factory may not count as an additional property for Ella’s SDLT calculation because it’s used for the partnership’s trade.

Properties Outside England and Northern Ireland

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Owning property outside England and Northern Ireland counts towards determining higher SDLT rates for new purchases within these regions, especially if the foreign property constitutes a ‘major interest’.

Global Property Ownership

  • If you’re planning to buy a new property in England or Northern Ireland and already own property outside these regions, that foreign property counts when calculating whether higher SDLT rates apply. For example, if “Sophie” owns a villa in Spain and wants to buy a house in England, her Spanish villa is considered in determining if the higher SDLT rates are due for her new purchase in England.

Understanding ‘Major Interest’

  • A ‘major interest‘ in property refers to owning it outright (freehold) or having a long-term lease (over seven years). For properties outside England and Northern Ireland, determining if an overseas property counts as a ‘major interest’ involves comparing it to these criteria. If “Max” owns a 10-year lease on an apartment in France, this would likely be considered a ‘major interest’, impacting SDLT calculations for any additional property he buys in England or Northern Ireland.

Inheritance and SDLT

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Inheriting a property share can affect SDLT rates on future purchases if the inherited share is considered within three years of buying a new property, though exemptions apply if the share does not exceed 50%.

Joint Ownership Through Inheritance

  • Inheriting property can also affect SDLT for future property purchases. If you inherit a share of a property within three years before buying a new property, this inherited property is considered when assessing higher SDLT rates, under certain conditions. For instance, if “Liam” and his sister inherit their childhood home a year before Liam buys a new flat, this inherited home could influence whether he pays higher SDLT rates on the flat.

Conditions for Exemption

  • There are specific conditions where the inherited property won’t lead to higher SDLT rates on a new purchase:
    • You became a joint owner through inheritance.
    • You and your spouse or civil partner’s combined share in the inherited property did not exceed 50% at any point in the three years before buying the new property.

Examples

  1. Global Ownership: “Amelia,” living in Northern Ireland, owns a beach house in Greece. When she decides to buy a second home in Belfast, her Greek property will be considered, potentially subjecting her to higher SDLT rates on the Belfast home.
  2. Inheritance Scenario: “Jake” inherits a 25% share in his grandfather’s house in Scotland two years before purchasing a new apartment in London. Since this inherited share is less than 50%, and the inheritance occurred within three years before the London apartment purchase, the Scottish house will be considered in determining if higher SDLT rates apply to the London apartment.

Purchase of a New House

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Jordan’s purchase of a new house may attract higher SDLT rates if it’s a significant ownership stake, costs £40,000 or more, and isn’t a replacement for his main home, especially if he already owns another property.

“Jordan” wants to buy a new house. For the purchase to be considered for higher SDLT rates, some conditions need to be met:

  • Jordan is buying as an individual, not through a company or trust.
  • The property is a significant interest in a single dwelling, meaning it’s a major ownership stake in a home. This doesn’t include short-term leases of less than seven years.
  • The purchase price is £40,000 or more.
  • The property Jordan is buying isn’t leased out for more than 21 years. So, if Jordan’s buying a freehold, there isn’t a long-term tenant already in place.
  • On the day Jordan buys the new property, they already own, or are considered to own, another property worth at least £40,000, and this isn’t being sold as part of the transaction. This condition also applies if Jordan co-owns another property. However, if Jordan’s other property interest is in a long-term lease (over 21 years), this point might not apply.
  • The property Jordan is buying isn’t a replacement for their main home. If Jordan were selling their current main home and buying this new one to live in, higher rates wouldn’t apply.

Scenario 1: Buying a Second Home

Let’s say Jordan already owns a flat worth £200,000 and decides to buy a house for £300,000. Since Jordan isn’t selling the flat and the house costs more than £40,000, the purchase of the house will likely be subject to higher SDLT rates because it meets all the criteria listed above.

Scenario 2: Replacing a Main Residence

However, if Jordan sells the flat and then buys the house intending to move in and make it their new main residence, the higher SDLT rates wouldn’t apply, provided the sale and purchase align with SDLT rules for main residence replacement.

SDLT Exemption for Existing Homeowners

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Homeowners buying additional shares in their current homes may be exempt from higher SDLT rates if the property has been their main residence for the past three years and they already had a significant ownership stake.

When buying additional property interests, the rules around Stamp Duty Land Tax (SDLT) can get quite complex, especially when higher rates are involved. However, there’s an exemption that could be beneficial for homeowners looking to adjust their stakes in their current homes. This section breaks down this exemption to help property investors understand when they might not have to pay the higher rates of SDLT.

The Basic Exemption Criteria

If you’re buying an extra share in the property you already own, you might be exempt from paying the higher SDLT rates if:

  • You already had a significant ownership stake in the property before the new transaction.
  • The property has been your only or main home for the last three years up to the transaction date.

Example: Imagine “Sara” owns half of her house and lives in it as her main residence. She decides to buy the other half from her co-owner. Since Sara already owns part of the house and it’s her main home, she might not have to pay the higher SDLT rates for this additional purchase.

When the Exemption Doesn’t Apply

However, there are specific situations where this exemption won’t help, such as:

  • Leasehold with Short Term: If your existing ownership is a leasehold with less than 21 years left on the lease.
  • Joint Ownership: If you’re one of five or more joint owners.
  • Partial Ownership: If you own less than a quarter of the property in some ownership arrangements.

Example: If “Sara” had a leasehold interest with only 20 years left, even if she’s buying more of the property, she’d still face the higher SDLT rates.

Effective Date and Major Interest

This exemption only works if, by the end of the day on which the new transaction is completed (known as the ‘effective date’), you don’t own a significant interest in another property. Also, the rules for this exemption have been in place for transactions since 22 November 2017.

Replacing Your Main Residence

To meet the exemption’s requirements through the “replacement of main residence” test, you can:

  • Sell your previous main residence on or before the day you acquire your new main residence, or
  • Buy your new main residence first and sell the old one later.

Example: “Sara” might be moving from one main residence to another. If she sells her old home the same day she buys the new one, she could avoid the higher SDLT rates thanks to this exemption.

Replacing Your Main Residence

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When selling your old main residence and buying a new one, SDLT rules consider if the new home will be your main residence, if you sold the old one within three years, and if you haven’t bought another main home in between, with special rules to prevent tax avoidance.

When you’re moving homes and selling your old main residence to buy a new one, there are specific rules about Stamp Duty Land Tax (SDLT) that can affect you. 

The Basics of Replacing Your Main Residence

To be seen as replacing your main residence (which can affect the SDLT you pay), a few conditions need to be met:

  • Intention to Move: On the day you buy your new home, you must plan to make it your main or only residence.
  • Selling Your Old Home: You must have sold or disposed of your previous main residence within the three years before buying the new one. This could include selling a house you lived in or transferring ownership to someone else.
  • Ownership Details: Right after you’ve sold your old home, neither you nor your spouse should still own it. This rule helps prevent people from avoiding higher SDLT rates by keeping ownership in some way.

Special Rules to Prevent Avoidance

There are safeguards to stop people from dodging the higher SDLT rates. For example, if you sell your main residence and your spouse still has some interest in it, you might not meet the conditions for replacing your main residence unless you were not living together at that time.

Look Back Period

The “look back period” is a way of checking if you’ve sold your main residence within the last three years before buying a new one. However, for homes bought on or before 26 November 2018, this three-year rule doesn’t apply. This exception was made so people who sold their homes before the higher SDLT rates were announced wouldn’t be unfairly caught by the new rules.

Only the First New Home Counts

If you buy multiple homes within three years of selling your old one, only the first purchase counts as replacing your main residence for SDLT purposes. This rule is designed to focus on genuine replacements, not multiple property acquisitions.

Renting Between Moves

When you’re renting a place between selling your old main residence and buying a new one, it won’t affect your ability to claim the new purchase as a replacement for your main residence, as long as the rental period isn’t more than seven years. This rule is designed to treat renting as a temporary arrangement, ensuring that the new home can still be considered a main residence for Stamp Duty Land Tax (SDLT) purposes.

When buying and selling main residences, specific conditions must be met for a new home to be considered a replacement of the main residence. For instance, if Isobel or her partner sold their previous main home at any point before purchasing the new one, this could qualify the new home as a replacement, provided the previous home was their main residence at some point in the three years before the new purchase. Additionally, Isobel should not have bought another main home between selling the old one and buying the new one.

Buying a New Home Before Selling the Old One

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

If you purchase a new home before selling your old one, you’ll initially pay higher SDLT rates on the new property. However, if you sell the old home within three years and had intended the new home as your main residence from the beginning, you can reclaim the higher SDLT paid, with extensions available for unforeseen delays.

Main Rules

  • If you buy a new home intending it to be your main residence, but you haven’t sold your old main residence by the end of the day you buy the new one, you must pay higher rates of SDLT at the time of purchase.
  • For the new house to be considered a replacement for your main residence (thus enabling you to claim back higher rates of stamp duty), you must sell your previous main home within three years. Additionally, you need to have intended the new house to be your main residence from the start.

Example:

  • Example: Laura and Jordan purchase a new house on July 1, 2021, intending it to be their main residence. However, they haven’t sold their old main residence by the end of that day, so they pay higher rates of SDLT at the time of this purchase. They eventually sell their old house on May 15, 2024. Because they sold the old house within the three-year window and had planned for the new house to be their main home from the start, the new house is considered a replacement. This allows them to claim back the higher rates of SDLT they initially paid.

When Extensions Apply

Permitted Periods

  • Normally, you have three years from the day after you buy your new home to sell your old one and still qualify for the replacement consideration.
  • If you couldn’t sell your old house within these three years due to unexpected reasons beyond your control (like the COVID-19 pandemic), you might get more time. However, you have to ask HMRC for this extension within 12 months after you finally sell your old house.

What Counts as ‘Unexpected Reasons’?

  • Situations where you’re prevented from selling your old house due to government advice during a pandemic.
  • Actions taken by a public authority preventing the sale.

What Doesn’t Count?

  • Changing your mind about selling at the last minute.
  • Financial difficulties.
  • Choosing not to sell because you’d make a loss.

Higher rate SDLT calculations

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When buying an additional residential property, a 3% SDLT surcharge applies on top of standard rates, significantly increasing the total tax due on properties like second homes or investment properties.

 The higher rate of Stamp Duty Land Tax (SDLT) for additional residential properties applies to buyers purchasing an additional home or property investors expanding their portfolio. This is usually a 3% surcharge on top of the standard SDLT rates for residential properties. Here’s how this calculation works for the three given property values, considering the property is an additional residential property, hence attracting the higher rate.

Higher Rates for Additional Properties:

  • Additional 3% on top of the standard rates for each band.

Example Calculations for Additional Properties:

  1. £150,000 Property:
  • Standard Rate: 0% on the first £250,000 = £0
  • Higher Rate Surcharge: Additional 3% on the entire price (£150,000) = £4,500
  • Total SDLT: £4,500
  1. £350,000 Property:
  • Standard Rate: 0% on the first £250,000 = £0; 5% on the next £100,000 = £5,000
  • Higher Rate Surcharge: Additional 3% on the entire price (£350,000) = £10,500
  • Total SDLT: £5,000 (standard) + £10,500 (higher rate) = £15,500
  1. £1,000,000 Property:
  • Standard Rate: 0% on the first £250,000 = £0; 5% on the next £675,000 (£250,001 to £925,000) = £33,750; 10% on the remaining £75,000 (£925,001 to £1,000,000) = £7,500
  • Higher Rate Surcharge: Additional 3% on the entire price (£1,000,000) = £30,000
  • Total SDLT: £33,750 (standard) + £7,500 (standard for portion above £925,000) + £30,000 (higher rate) = £71,250

Key Points to Remember:

  • The higher SDLT rates apply when purchasing an additional residential property, which includes second homes and buy-to-let investments.
  • The 3% surcharge is applied to the entire purchase price, not just the portion above any thresholds.
  • For buyers owning multiple properties, understanding these calculations is crucial to budgeting for the total cost of a property purchase.

Higher Rate SDLT for Non-Individuals

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When companies or certain trusts buy residential properties, they often pay higher SDLT rates, applying to single dwellings priced over £40,000 and not under long-term leases exceeding 21 years.

When businesses, like companies or certain types of trusts, buy residential properties, they often face higher Stamp Duty Land Tax (SDLT) rates. This section breaks down the conditions under which these higher rates apply, especially for single dwelling purchases.

The Basics of Higher Rate SDLT for Non-Individuals

  1. Who is the Purchaser?

If the buyer is not an individual person — for instance, a company or the trustees of a discretionary trust — different rules apply. Think of a situation where a company called “Blue Sky Properties Ltd” or a trust managed by trustees wants to buy a house.

  1. What Counts as a Chargeable Interest?

The property being bought must be a significant interest in a single residential dwelling. This means the company or trust is buying either the whole house or a substantial part of it. For example, “Green Leaf Trust” decides to purchase a standalone family home.

  1. The Price Tag

The transaction is only considered under these rules if the purchase price is £40,000 or more. So, if “Blue Sky Properties Ltd” buys a property for £50,000, this rule applies.

  1. Lease Considerations

The property should not be on a long-term lease at the time of purchase. Specifically, there shouldn’t be a lease with more than 21 years left on it when the deal is closed. For instance, if “Green Leaf Trust” buys a property, it should ensure that if there is an existing lease, it has less than 21 years remaining.

An Example to Illustrate

Let’s imagine two scenarios:

  • Scenario 1: “Blue Sky Properties Ltd” buys its first residential property for £100,000. Since this is a company purchasing a property over £40,000, the higher SDLT rates apply, regardless of whether it’s their first or fifteenth property purchase.
  • Scenario 2: “Green Leaf Trust”, managing a discretionary trust, buys a house for £150,000. This house is not subject to any long-term leases. Thus, the trust also faces the higher SDLT rates due to its non-individual purchasing status.

In both cases, the important points are that the entities are not individual people, the properties are single dwellings, the purchase prices exceed £40,000, and there are no long leases that complicate the transaction.

Individual Purchasing Multiple Properties

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When an individual buys multiple properties each priced over £40,000 and not under long-term leases, higher SDLT rates typically apply, unless exceptions like the ‘granny flat exception’ or bulk purchase rules offer relief.

Key Conditions for Higher Stamp Duty Rates

  1. Individual Buyer: The person buying the properties is an individual, not a company.
  2. Multiple Dwellings: The purchase includes two or more properties.
  3. Minimum Price: Each of at least two properties in the deal is bought for £40,000 or more.
  4. Lease Terms: At least two of the properties are not under a long-term lease of more than 21 years.
  5. Independence of Properties: At least two of the properties are not considered ‘subsidiary’ to each other. A property is ‘subsidiary’ if it’s within the same grounds or building as a larger property and the price attributed to it is less than two-thirds of the total price for both.

Exceptions to Higher Rates

  • Subsidiary Dwellings: If all but one of the properties are ‘subsidiary’, the purchase might be treated as if only a single dwelling was bought, potentially avoiding higher rates.
  • Mixed Use and Bulk Purchases: Special rules apply if the purchase includes both residential and non-residential properties, or if you’re buying six or more dwellings at once. In these cases, you might avoid higher stamp duty rates or qualify for multiple dwellings relief, depending on the specifics.

Practical Advice

  • Separate Contracts: If one of the properties could replace your main residence, consider buying it under a separate contract. This might help you avoid higher rates on that particular property.
  • Choose Wisely: When buying six or more properties, you can choose between non-residential stamp duty rates or claiming multiple dwellings relief. Calculate both options to see which is more tax-efficient for you.

Example to Explain Ideas

“Charlie” is buying two houses: one for £250,000 and a smaller one in the backyard for £100,000. Normally, this could trigger higher stamp duty rates because he’s buying multiple properties. However, if the smaller house qualifies as a ‘granny flat’, Charlie might avoid higher rates on it, depending on how the total price is allocated between the two properties.

In another scenario, “Sam” is buying a building with six apartments for £2 million. Since he’s buying more than five dwellings, he can opt for non-residential stamp duty rates.

Property Purchases through Trusts

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When trusts or companies buy property, they often face higher tax rates if they purchase a major interest in multiple residential properties each valued over £40,000 and not under long-term leases.

When certain entities like companies or trusts purchase property, the transaction might be subject to higher tax rates. Here’s what makes a transaction fall into the higher rates category:

  1. Who is Buying?: The purchaser is not an individual. This includes companies, trustees of certain trusts (like a discretionary trust), and other non-individual entities.
  2. What is Being Bought?: The purchase involves a significant interest (referred to as a ‘major interest’) in two or more residential properties.
  3. Purchase Price: At least one of the properties involved in the transaction has a purchase price of £40,000 or more.
  4. Lease Terms: On the date the transaction is completed (the ‘effective date’), at least one of the properties is not under a long-term lease of more than 21 years.

Role of Trusts, Companies, and Partnerships in Property Transactions

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

In property transactions, trusts treat the beneficiary as the buyer if they have life interests or income rights, while purchases by discretionary trusts are taxed as if a company made them.

Trusts and Their Impact

Bare Trusts: If a trustee is purchasing property on behalf of a bare trust, the beneficiary of the trust is considered the actual buyer.

Example: If Emily is the beneficiary of a bare trust and the trust buys a house, for tax purposes, Emily is seen as the one buying the house.

Life Interest or Income Rights: If the trust holds property and the beneficiary has the right to either live in the property for life or receive income from it, the beneficiary is treated as the buyer.

Example: If Michael is entitled to the income from a property owned by a trust, he is considered the buyer for tax purposes.

Under 18 Beneficiaries: If the beneficiary is under 18, their parents are treated as the buyers unless the child is protected by specific mental capacity legislation.

Example: If a trust buys a property for 10-year-old Lucy, her parents are considered the buyers for tax purposes.

Other Trusts: If the trust does not qualify as a bare trust or does not grant the beneficiary life occupation or income rights, the trustee is considered the buyer.

Example: If a trust buys a property without giving specific rights to a beneficiary, the trustee is seen as the buyer.

Discretionary Trusts: Purchases made by discretionary trusts are treated as if made by a company, not an individual.

Example: If a discretionary trust purchases a property, it’s treated like a company buying the property for tax purposes.

Understanding these rules is crucial for entities like trusts, companies, and partnerships to navigate the tax implications of property transactions effectively.

Higher Rates Transactions for Non-Individual Purchasers

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When companies, trusts, or partnerships buy residential properties priced over £40,000 and not under long-term leases, they typically face higher stamp duty rates, with specific conditions affecting partnerships and individual partners differently.

When a company, trust, or partnership buys residential properties, there are specific rules to determine if the purchase is subject to higher stamp duty rates. Here’s a breakdown of when these higher rates apply:

Criteria for Higher Rates

Companies buying residential properties will face higher stamp duty rates if:

  • The property’s price is £40,000 or more.
  • The property interest purchased is not under a lease with more than 21 years left.

For properties over £500,000, a 15% higher threshold rate may apply.

Partnerships

Partnerships are subject to higher rates when purchasing an additional residential property if the partnership already owns one.

However, if you’re a partner buying a property independently (not on behalf of the partnership), these rules don’t affect your partners unless they’re your spouse.

You’re exempt from higher rates if you’re purchasing a property for personal use and any other properties you own are strictly for the partnership’s business purposes.

Examples 

Companies: A company, “Bright Future Ltd.,” buys a residential property for £100,000. This purchase will attract higher SDLT rates because the company is not an individual, and the property’s price is above the £40,000 threshold.

Partnerships: “Creative Minds Partnership” owns an office building. If the partnership buys a residential property, it must pay higher SDLT rates on the new purchase. However, if a partner, Sarah, buys a house for herself and doesn’t own any other residential properties except through the partnership used for business, the higher rates don’t apply to her purchase.

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Higher SDLT Rates and Abolition of Multiple Dwellings Relief

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

The abolition of Multiple Dwellings Relief (MDR) significantly increases Stamp Duty Land Tax (SDLT) costs for investors buying multiple residential properties, as they can no longer use MDR to reduce their tax liability, resulting in much higher SDLT payments.

Scenario 1: Buying a Block of 8 Flats

Prior to the abolition of Multiple Dwellings Relief (MDR), an investor had three options for calculating Stamp Duty Land Tax (SDLT) when purchasing multiple properties, such as a block of 8 flats:

    1. Use Multiple Dwellings Relief (MDR):
      • Calculation: MDR allowed buyers to divide the total purchase price by the number of dwellings to calculate SDLT based on the average value of each dwelling.
      • Higher Rate: Since the purchase is by a limited company, a 3% higher rate applies.
      • Example:
      • Purchase Price: £2,000,000
      • Average Value per Flat: £2,000,000 / 8 = £250,000
      • SDLT per Flat (3% of £250,000): £7,500
      • Total SDLT: £7,500 x 8 = £60,000
    2. Apply Non-Residential Rates:
      • Eligibility: As the purchase includes six properties or more, the investor could apply non-residential rates.
      • Rates: Non-residential rates are generally lower than residential rates for higher-value transactions.
    3. Apply Residential Rates:
      • Calculation: Calculate SDLT based on the total purchase price without any relief.
  • Example:
      • Purchase Price: £2,000,000
      • SDLT Calculation:
        • First £250,000 at 0%: £0
        • Next £675,000 at 5%: £33,750
        • Next £575,000 at 10%: £57,500
        • Remaining £500,000 at 12%: £60,000
      • Additional 3% Surcharge: 3% of £2,000,000 = £60,000
      • Total SDLT: £33,750 + £57,500 + £60,000 + £60,000 = £211,250

Comparison:

  • With MDR: £60,000
  • Without MDR: £211,250

The abolition of MDR means that the cost of purchasing multiple properties like a block of flats has increased significantly due to higher SDLT rates.

Scenario 2: Buying 5 Flats

In this scenario, the investor cannot apply non-residential rates because the purchase is fewer than six properties. The options are:

    1. Use Multiple Dwellings Relief (MDR):
      • Calculation: MDR allowed the division of the total purchase price by the number of dwellings.
      • Higher Rate: A 3% higher rate applies for corporate purchases.
  • Example:
        • Purchase Price: £1,250,000
        • Average Value per Flat: £1,250,000 / 5 = £250,000
        • SDLT per Flat (3% of £250,000): £7,500
        • Total SDLT: £7,500 x 5 = £37,500
    1. Apply Residential Rates:
      • Calculation: Calculate SDLT based on the total purchase price.
  • Example:
      • Purchase Price: £1,250,000
      • SDLT Calculation:
        • First £250,000 at 0%: £0
        • Next £675,000 at 5%: £33,750
        • Remaining £325,000 at 10%: £32,500
      • Additional 3% Surcharge: 3% of £1,250,000 = £37,500
      • Total SDLT: £33,750 + £32,500 + £37,500 = £103,750

Comparison:

  • With MDR: £37,500
  • Without MDR: £103,750

The inability to apply non-residential rates and the abolition of MDR significantly increase the SDLT liability, making investments in multiple residential properties more expensive.

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Higher Rates of SDLT and Linked Purchases

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

When multiple property transactions are linked, SDLT is calculated on their combined value, often resulting in higher tax rates, especially for additional residential properties bought since April 2016.

Understanding Stamp Duty Land Tax on Linked Purchases

What Are Linked Transactions?

Linked transactions occur when you buy or transfer more than one property under arrangements that are connected to each other in some way. This connection could be because the deals involve the same parties, are part of a single plan, or occur as a series of transactions.

Why Does It Matter?

If transactions are linked, SDLT is calculated on the total value of all properties combined. This often results in paying a higher rate of SDLT than if each transaction were considered separately.

Higher Rates of SDLT

From 1 April 2016, buying additional residential properties may attract a higher rate of SDLT—an extra 3% on top of the standard rates. This is crucial for investors holding multiple properties.

Example: Buying Multiple Properties from a Builder

Scenario: You buy three houses from the same builder. The first house is for your family, and the next two are investment properties. The prices are £280,000 for the first house and £275,000 for each of the next two.

Linking: Since all three purchases are from the same builder and part of a series, they’re considered linked transactions for SDLT purposes.

Calculation: Instead of calculating SDLT for each property individually, you must add up the total purchase price (£830,000) and calculate SDLT on this total amount. This leads to a higher SDLT due to the combined value pushing the transaction into higher SDLT brackets.

SDLT Calculation for Linked Transactions

First Purchase: £280,000

  • No tax on the first £250,000.
  • 5% tax on the remaining £30,000: 5%×£30,000=£1,5005%×£30,000=£1,500
  • Total SDLT for First Purchase: £1,500

Second Purchase: £275,000

  • Since this is Sam’s second property, higher SDLT rates apply (additional 3%).
  • Combined SDLT Calculation for Both Properties (£555,000):
    • 0% on £250,000 = £0
    • 5% on £305,000: 5%×£305,000=£15,2505%×£305,000=£15,250
    • Standard SDLT for both: £15,250

Higher Rates Apply:

  • 3% on £250,000: 3%×£250,000=£7,5003%×£250,000=£7,500
  • 8% on £305,000: 8%×£305,000=£24,4008%×£305,000=£24,400
  • Total higher rates SDLT for both: £7,500 + £24,400 = £31,900

Additional SDLT for First Property:

  • Higher rate for first house: £31,9002=£15,9502£31,900​=£15,950
  • Amount already paid: £1,500
  • Additional due: £15,950−£1,500=£14,450£15,950−£1,500=£14,450

SDLT for Second Property:

  • Higher rates SDLT: £31,9002=£15,9502£31,900​=£15,950

Third Purchase: £275,000

  • Total consideration for all three properties: £830,000.
  • Standard SDLT Calculation for All Properties:
    • 0% on £250,000 = £0
    • 5% on £580,000: 5%×£580,000=£29,0005%×£580,000=£29,000

Higher Rates Apply:

  • 3% on £250,000: 3%×£250,000=£7,5003%×£250,000=£7,500
  • 8% on £580,000: 8%×£580,000=£46,4008%×£580,000=£46,400
  • Total higher rates SDLT for all: £7,500 + £46,400 = £53,900

Additional SDLT Payments:

  • For the first property: £14,450
  • For the second property: £15,950
  • For the third property: £23,500

Total SDLT for All Three Properties: £14,450(????????????????????)+£15,950(????????????????????????)+£23,500(????ℎ????????????)=£53,900£14,450(First)+£15,950(Second)+£23,500(Third)=£53,900

Summary

For all three linked transactions, the total SDLT comes to £53,900, reflecting the higher rates due to the linkage and the increased combined value.

  —

How to Apply for a Repayment of Higher SDLT Rates

(SDLT Rates and Calculations>3% Higher Residential Rates of SDLT)

Homeowners can apply for a refund of higher SDLT rates if they sell their previous main residence within three years of buying a new one, with applications due to HMRC within 12 months of the sale.

Only applicable to homeowners. When you buy a new property and sell your previous main home, you may be eligible for a refund of the higher Stamp Duty Land Tax (SDLT) rates. Here’s how you can apply for this repayment, whether you’re the main buyer or an agent acting on their behalf.

Qualifying for a Refund

To be eligible for a refund, you must sell your previous main residence within three years of purchasing your new property, unless there were exceptional circumstances that delayed the sale.

Deadlines for Applying for a Refund

For Properties Sold on or After 29 October 2018: Your refund request must reach HMRC within 12 months of the sale of your previous main residence or within 12 months of the filing date for the new property, whichever comes later.

Scenario 1: Selling Before Buying

Background:
Jordan sold his previous main residence on May 1, 2024, and then bought a new home on July 1, 2024. He paid a higher rate of SDLT due to not having sold his previous main residence at the time of the new purchase.

Key Dates:

  • Sale of old home: May 1, 2024
  • Purchase of new home: July 1, 2024
  • Filing date for SDLT return for the new home: Typically, this would be 14 days after the purchase, so let’s say July 15, 2024.

Deadline for Refund Request:
Jordan has until May 1, 2025 (12 months from the sale of his old home), to request his SDLT refund from HMRC, as the sale of his previous residence happened before the purchase of the new one.

Scenario 2: Buying Before Selling

Background:
Alex bought a new main residence on May 1, 2024, and paid the higher SDLT rate because her previous main residence had not been sold yet. She managed to sell her old home later, on September 1, 2024.

Key Dates:

  • Purchase of new home: May 1, 2024
  • Sale of old home: September 1, 2024
  • Filing date for SDLT return for the new home: Assuming the return was filed on time, the deadline would be May 15, 2024.

Deadline for Refund Request:
In Alex’s case, the sale of her old home occurred after the purchase of the new one. Therefore, she has until September 1, 2025 (12 months from the sale of her old home), to request her SDLT refund from HMRC.

 Exceptional Circumstances

If you bought your new home on or after 1 January 2017 and couldn’t sell your previous one within three years due to uncontrollable reasons, such as COVID-19 or government actions, you might still qualify for a refund. After the obstacle has been resolved and you’ve sold your previous home, you can apply for the refund by explaining the delay to HMRC.

Applying for a Repayment

You can apply for a repayment online using the Government Gateway, or by filling out a form on-screen, printing it, and mailing it to HMRC. If you’re not already signed up, you’ll need to create a Government Gateway user ID and password.

Before You Start

Ensure your web browser is updated. Gather all necessary information beforehand, as you cannot save the form mid-way through completion. Then go to: https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties 

Information You’ll Need

To complete the form, you’ll need:

  • Your details and, if applicable, the main buyer’s details if they’re different from yours.
  • Information about the property that was subject to higher SDLT rates, including the purchase date and the unique SDLT transaction number.
  • Details of the previously sold main residence, including the sale date, property address, and buyer’s name.
  • The amount of SDLT paid on the higher-rate property and the amount you’re requesting to be repaid.
  • Bank account and sort code for the refund recipient. HMRC aims to process refunds electronically.

If you’re an agent applying on behalf of the main buyer, include a signed letter of consent from them and any necessary authority letters if the refund is to be paid to you.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.